A BILL SEEKING TO ENACT THE NIGERIAN LOCAL CONTENT DEVELOPMENT AND ENFORCEMENT COMMISSION: A MISCONTRUED PERCEPTION OF EXECUTIVE ORDER 03.

INTRODUCTION

The Nigerian Local Content Development and Enforcement Commission Bill, 2020, (the “Bill”) is seeking to repeal the Nigerian Oil and Gas Industry Content Act, 2010 (hereinafter referred to as the “Act”). This shortsighted initiative emerged out of the misconstrued perception of the true purpose behind the issuance of the Executive Order 03 signed by the President of the Federal Republic of Nigeria seemingly in support of Local Content, which mandates all Ministries, Departments and Agencies (MDAs) to grant preference to local manufacturers of goods and service providers in their procurement of goods and services. Also, another misconception is the proclamation entitled “Presidential Executive Order for Planning and Execution of Projects, Promotion of Nigerian Content in Contracts and Science, Engineering and Technology,’’ by President Muhammadu Buhari, pursuant to the authority vested in him by the Constitution, which was signed on Friday, February 2, 2018, the Executive Order No. 5 (“EO5”) by which all Ministries, Departments and Agencies (“MDAs”) of Government were directed to engage indigenous professionals in the planning, design and execution of National Security projects and maximize in-country capacity in all contracts and transactions with science, engineering and technology components. These are directives which can be easily actualized through the simple release of Guidelines or modalities to that effect by the concerned MDAs without the need to enact a new Local Content Law, let alone repeal the existing Act. While this move introduced by the Bill could be considered as remotely development-driven on the surface, however, its bid to repeal the hitherto existing NOGICD Act, by establishing a Local Content Commission and expanding the scope of Local Content into all other Sectors of the economy, will only result in the furtherance of unwarranted bureaucratic bottlenecks, which will hamper the much desired rapid growth of the economy if assented to. This work exposes the attendant shortfalls of the Bill, along with the impracticability of the innovations it seeks to import into the economic structure of the country and expound on why efforts should rather be channeled along the lane of properly revamping the NOGICD Act already before the House of Representative and undergoing some salient modifications, rather than obliterating it completely.

THE EXCLUSIVITY OF LOCAL CONTENT LAW TO THE OIL AND GAS SECTOR

Local content requirements are provisions (usually under a specific law or regulation) that commit Foreign Investors and companies to a minimum threshold of goods and services that must be purchased or procured locally. From a trade perspective, local content requirements essentially act as import quotas on specific goods and services, where Governments seek to create market demand via legislative action. It ensures that within strategic Sectors particularly those such as Oil and Gas with large economic rents, or vehicles where the industry structure involves numerous supplier’s domestic goods and services are drawn into the industry, providing an opportunity for Local Content to substitute domestic value-addition for imported inputs.

The rationale for Local Content requirements is especially strong, particularly for the Energy Sector. Apart from the United Kingdom, very few new energy producers including Norway, long considered as the gold standard Local Content had, upon discovery of their Oil and Gas deposits, stated the requisite industrial capacity to serve as an internationally competitive platform for exploration, extraction, distribution and export. Given that the Nigerian Oil and Gas industry is nearly a century old, the dominance of established operators and the sophistication of energy technology particularly for offshore deposits implies that emerging energy producers will, at the outset, nearly always depend on foreign firms. While energy sector investments (if properly managed) can ensure a steady revenue stream and constant (and in the case of developing countries, rising) demand levels, its exploitation however, requires sophisticated and cutting-edge technology, a ready-made demand for a wide network of suppliers in virtually all areas of manufacturing and services, and ongoing employment for trained staff, both at home and in other energy-producing countries around the world.

Therefore, the reason for having a Local Content Development Act specifically enacted for the Oil and Gas Industry was not just to create more jobs but primarily to ensure technology transfer of the grossly technical expertise applied in the Oil and Gas Industry among other industry-based objectives. Countries all over the world reserve Local Content laws for exploration of natural resources especially in relation to the energy sector and this is because they desire to build the necessary capacity to cater for that sector without high dependence on external bodies.

Similarly, a cursory look at the regime of Local Content in other Countries such as Ghana, will reveal that the whole concept of Local Content not only resides with the Oil and Gas sector, but also focuses on production and utilization of the Country’s resources, and this puts away the need to have it present in other sectors. Regulation 49 of its Petroleum (Local Content and Local Participation) Regulations, 2013 L.I 2204, defines Local Content thus:

The quantum or percentage of locally produced materials, personnel, financing, good and services rendered in the petroleum industry value chain and which can be measured in monetary terms” (Underlined is ours for emphasis).

Having so defined local content, the country has no other law on the area, as this will mean an overstretching of its objectives.

Similarly, Section 106 0f the NOGICD Act defined “Nigerian Content” as thus:

The quantum of composite value added to or created in the Nigerian economy by a systematic development of capacity and capabilities through the deliberate utilization of Nigerian human, material resources and services in the Nigerian Oil and Gas industry” (Underlined is ours for emphasis).

THE BILL LACKS A CLEAR-CUT APPLICATION AND DIRECTION

Unlike the NOGICD Act which provides for a clearly-worded spectrum of its application as regulating activities in the Oil and Gas Sector, and thus makes for ease of its enforcement, the Bill in question seeking to repeal the Act has failed to delimit itself to any relevant Sector(s) of the economy or even spell out the nature of the exact activities it intends to regulate. It equally does not provide for the purpose its eventual enactment will achieve, which is in sharp contrast with the NOGICD Act, the focal point of which is the implementation and monitoring of Nigerian Content, ensure and encourage the full indigenous participation and transfer of technology to Nigerians and the provision for the development of Nigerian Content in the Nigerian Oil and Gas Industry, as vividly indicated by the wordings of the sections that ran through its pages and even more so, in the clauses of the Bill (NOGICD Act (Amendment) Bill) seeking to amend it.

The Local Content Development and Enforcement Commission Bill on the other hand is not Sector specific and other Sectors of the Nigerian economy comprises of Services, Mining, Forestry, Agriculture, Transport, Tourism, Energy, etc. Considering these Sectors are made up of 70% low income earners and striving entrepreneurs, it is quite an enormous task if not an outright impossibility to implement the wordings of the Bill. This deficiency it has by itself brought to the fore in many of its proposed clauses. Prominent among which is the very first Clause that hinges on the number of objectives it undertakes to achieve. Some provisions are stated below:

Clause 1

The objectives of this Bill include —

 

“(1) The imposition of the application of Nigerian Local Content to any transaction in which public fund belonging to the Federal Government of Nigeria or any of its arms and/or agencies is used in any sector of the Nigerian economy, in donor or loan funded projects and in activities carried out by any entity in possession of an investment agreement with any arm of the Federal Government of Nigeria or any of its agencies;

 

(2) The imposition of Nigerian Local Content to transactions in all sectors of the Nigerian economy where regulated activities are carried out especially in the petroleum, solid minerals mining, construction, power, information and communication technology, manufacturing and health sectors of the Nigerian economy;”

 

The foregoing provisions alone without addition, are an obvious pointer to the fact that the Bill is certainly biting a lot more than it can chew. Given that an innumerable percentage of publicly funded transactions involving the Federal Government, its Arms, Agencies in various sectors and activities by entities in investment Agreement with these bodies, are conducted year in and year out, of which an accurate data and status reports of are unfortunately not obtainable in any of the regulatory or statutory establishments empowered to oversee and monitor these transactions.

If such primary duties have been so neglected over the years, it automatically follows that there is absolutely no footing upon which the imposition of the application of Local Content can possibly thrive, as multiple projects and activities have not been and are still not being tracked, thus, breeding more avenue for;  perpetual looting of funds, low or zero revenue generation and abandoned or uncompleted public works, the sum of which could have been positively harnessed towards achieving the fast growth of the economy and according more impetus to public-private-partnership which will aid the smooth implementation of government policies, bring about robust economic and commercial boost and add to the volume of the national wealth.

Conversely, the NOGICD Act has maintained a solid record since its inception 10years ago, as it has remained focused on achieving its sole objective, made possible by the specific nature of its application to the Oil and Gas Sector, the mainstay of the economy and large contributor to the overall national GDP. Interestingly, about $9 billion has been retained from the average $20 billion being spent in the Oil and Gas industry yearly due to the implementation of the Act and about Nine Million man-hours has been achieving in training, with indigenous players owning about 40% of marine vessels operating in the industry. These are only a few of the laudable economic transformations ushered in by the Act as a result of the clarity and narrowed application of its mandates and the powers, functions and roles exercised by the agency saddled with the onus of giving effect to its sector-based provisions, the Nigerian Content Development and Monitoring Board.

ADDITIONAL EXPENSES TO THE NATIONAL BUDGET

It is beyond debate that an Act to make provision for Local Content on all sectors of the economy would not only be too voluminous and incapable of capturing all necessary developments it ought to, but it will equally increase the amount of expenses accruing to the annual national budget in running the costs of the numerous Directorates and Departments the Bill seeks to establish and in setting up offices for more Directors.  This is especially because the new Departments are more of a duplicate to the already existing Departments in the Ministries. Instead of creating new Directorates and Departments, it is advisable that the provisions in this Bill be used as an upgrade to the already existing Departments to properly discharge their administrative functions.

Conclusion

Before the advent of the Bill, the NOGICD Act has withstood the test of time and ensured developmental breakthroughs in the Oil and Gas Sector it regulates, piloted by the skillful management of the NCDMB, and it will be an economic drawback to discard it after a decade of excellence. Also, there are in existence various Ministries to cover each Sector of the economy all having regulations governing their activities. The application of Local Content is indeed, a concept that can only be successfully actualized in the Oil and Gas Sector alone, as records have exhibited, attempting to drag it into the shores of other Sectors is fated to being an exercise in harmonic futility. 

Written by:

O. M. Atoyebi, SAN

Mr. Oyetola Muyiwa Atoyebi, SAN is one of the most notable professional Nigerian lawyer, who has distinguished himself in his professional sphere within the country and internationally. He is the youngest in the history of Nigeria to be elevated to the rank of a Senior Advocate of Nigeria. At age 34, he was conferred with the prestigious rank in September, 2019. Mr. O.M. Atoyebi, SAN can be characterized as a diligent, persistent, resourceful, reliable and humble individual who presents a charismatic and structured approach to solving problems and also an unwavering commitment to achieving client’s goals. His hard work and dedication to his client’s objectives sets him apart from his peers.

As the Managing Partner of O.M. Atoyebi, SAN & Partners, also known as OMAPLEX Law Firm, he is the team leader of the Emerging Areas of Practice of the Firm and one of the leading Senior Advocates of Nigeria in Local Content Law, where he has worked with various key industry stakeholders and successfully facilitated transactions in the Oil & Gas and Energy Sector. He has a track record of being diligent and he ensures that the same drive and zeal is put into all matters handled by the Firm.

O. M. Atoyebi, SAN.
A BILL SEEKING TO ENACT THE NIGERIAN LOCAL CONTENT DEVELOPMENT AND ENFORCEMENT COMMISSION: A MISCONSTRUED PERCEPTION OF EXECUTIVE ORDER 03. was last modified: September 7th, 2020 by judge
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